Public sector banks more efficient than private banks, finds EAC-PM study
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Siddharth Upasani
A recent EAC-PM study reveals that public sector banks have surpassed their private and foreign counterparts in operational efficiency. The analysis highlights a significant shift, with state-run lenders achieving a 93.12% efficiency score compared to 86.02% for private banks.
A Paradigm Shift in Indian Banking Efficiency
A groundbreaking study released by the Economic Advisory Council to the Prime Minister (EAC-PM), titled ‘Reforms, Efficiency, and Productivity of Indian Banking Sector in the Last Decade: A DEA Approach’, has challenged long-standing narratives regarding the Indian financial sector. Authored by Soumya Kanti Ghosh and Tapas Kumar Parida, the report provides empirical evidence that public sector banks (PSBs) have outperformed private and foreign banks in operational efficiency, particularly over the last three years.
Understanding the Efficiency Metric
The study utilizes Data Envelopment Analysis (DEA) to measure performance. An efficiency score of under 100% serves as a critical indicator: it suggests that a banking institution possesses the potential to maintain its current output levels while simultaneously reducing its input requirements. With PSBs reaching an efficiency score of 93.12% for the 2025-26 period, they are operating significantly closer to the theoretical frontier of maximum efficiency than private banks, which sit at 86.02%, and foreign banks, which trail at 85.88%.
Challenging Conventional Wisdom
For years, the prevailing consensus in market discourse has favored the agility and technological adoption of private-sector lenders. However, this study argues that the narrative of inherent private-sector superiority is flawed. By documenting the superior performance of government-run institutions, the authors suggest that recent policy reforms have successfully streamlined the operational frameworks of PSBs, allowing them to optimize resources more effectively than their peers.
The Impact of Structural Reforms
The improved position of public sector lenders can be attributed to a decade of systematic reforms aimed at cleaning up balance sheets and digitizing core banking services. These structural shifts have allowed state-owned banks to reduce non-performing assets and improve service delivery, effectively narrowing the gap that previously existed between them and more agile private players. This evolution represents a significant milestone in the maturation of India’s state-led financial infrastructure.
Future Implications for the Sector
Moving forward, these findings may influence future government policy regarding bank privatization and capital allocation. If PSBs continue to demonstrate high levels of operational efficiency, the rationale for further consolidation or divestment may be re-evaluated. The data suggests that when provided with the right institutional framework, state-run entities can achieve high productivity levels, providing a stable foundation for the nation’s broader economic growth objectives.
Conclusion
In summary, the EAC-PM analysis serves as a vital correction to the market's perception of banking productivity in India. By outperforming both private and foreign banks, public sector lenders have proven their resilience and adaptability. This shift not only underscores the success of recent banking reforms but also sets a new benchmark for performance that all banking institutions must now strive to meet.